Saturday, April 2, 2011

What type of investment is appropriate for each of us?

Some people think that investing is the fastest and easiest way  to try and get to enormous wealth. While this can have some truth attached to it, it is also most peoples experience that this gets much more difficult to achieve once they have put real money into an investment.

One of the first things a person needs to take into full consideration is their risk tolerence. It is absolutely true that most investments have a degree of risk attached to them. The only ones that do not are products like GIC's for instance in which your principle is guranteed. Looking at stocks we will find they all have risk but, some more than others.

The age of an investor plays a big part of deciding what risks are tolerable as does the net worth of an investor. There are numerous ingredients that one must look at and consider before actually being able to definitively decide how much risk is appropriate.

Personally, I would suggest for most people, a good place to start your portfolio would be in a secure dividend paying company. Now there are many companies that pay dividends but which one is better than the next one. Well for starters if one was to invest in let's say Proctor and Gamble for instance, you could expect your investment to be relatively safe from risk. Notice that I said "relatively". This means that if you were to research P&G out quite thoroughly you would find they are one of the few companies that is vitually recession proof. Therefore they have been in business for many years and have never missed a dividend payment yet, thus we consider them to be very low risk. That being said they also have a return on investment of  3.1% (at the time of this writing). I think we would agree that at present 3.1% is not bad considering it is much more than most banks would offer. However there are other companies that offer a higher ROI, just remember the higher the ROI generally the higher the risk factor. I personally keep the majority of my portfolio in this type of investment.

This brings me to the part of investing that I personally find attractive but also extremely challenging. When one wants to make the really huge ROI, the amount afforded by investing in juniors or penny stocks can meet that desire. The risk can be outrageous at times so one really needs to know what you are looking for when searching out possible investment opportunities. Before investing a single penny in this type of investment you need to know that there are times when you may lose every cent you invest in a specific company. If that type of risk is not acceptable then I would advise you not to  enter this type of investing. I like to try and keep this portion of my portfolio at about 15% which by most standards is quite a bit. Most people would probably be more comfortable between 5% and 10% of their portfolio.

If this type of investing is of interest to you, I think you will want to catch the next post as I will address this type of investing more in depth.

No comments:

Post a Comment